Hong Kong cuts taxes to shore up economy amid protests

Protesters stage a sit-in rally at the departure gates of the Hong Kong International Airport in Hong Kong, Tuesday, Aug. 13, 2019. Protesters severely crippled operations at Hong Kong's international airport for a second day Tuesday, forcing authorities to cancel all remaining flights out of the city after demonstrators took over the terminals as part of their push for democratic reforms.

Hong Kong’s government announced tax cuts and higher social spending Thursday to reverse a deepening economic slump aggravated by anti-government protests and the United States-China tariff war.

The territory’s financial secretary, Paul Chan, cut this year’s official growth forecast within a range of zero-one per cent, which could be the worst performance since 2009, during the global financial crisis.

Hurt by the plunge in American-Chinese trade, growth already was declining before anti-government protests erupted this year over a proposed extradition law and other grievances.

“The recent social incidents have hit the retail trade, restaurants and tourism, adding a further blow to an already-weak economy,” said a statement issued by Chan’s agency.

It also cited the impact of slowing trade in Asia, global financial market volatility and the risk of disorder as Britain leaves the European Union.

The measures announced Thursday will “provide impetus for our economy” and “help cushion the enterprises and people of Hong Kong against challenges,” the statement said.

The changes will result in some 1.3 million taxpayers having their taxes waived, Chan said at a news conference. He said the government will increase payments for elderly and low-income residents, and provide subsidies to small businesses and parents of schoolchildren.

The package will cost a total of HK$19.1 billion (US$2.4 billion), according to Chan.

Hong Kong’s economic growth held steady at 0.6 per cent over a year earlier in the quarter ending in June, but economists have cut forecasts as the US-China trade war and protests mounted.

Tourist arrivals fell 31 per cent in the first week of August from a year ago, according to the territory’s secretary of economic development, Yau Tang-wah.

Business from mainland visitors, who account for 80 per cent of Hong Kong’s tourists, fell between 33-50 per cent, according to the Hong Kong Tourism Association. Hotel operators say revenue could decline 10-20 per cent.

Some 29 countries and regions ,including the United States and Australia, have issued travel warnings about Hong Kong.

Retail sales slid 6.7 per cent in June from a year earlier, according to the government. Retailers have told reporters they expect double-digit declines for July and August.

“There is a growing risk of an even worse outcome” if the confrontation between protesters and the government escalates, causing an outflow of capital, Julian Evans-Pritchard and Martin Lynge Rasmussen of Capital Economics said in a report.

The territory’s central bank has reserves to defend the Hong Kong dollar’s exchange rate, “but the city’s property market would be hit hard, resulting in a deep recession,” they said.